SOURCES OF RISK AND EXPECTED RETURNS IN GLOBAL EQUITY MARKETS

This paper empirically examines multifactor asset pricing models for t he returns and expected returns on eighteen national equity markets. T he factors are chosen to measure global economic risks. Although previ ous studies do not reject the unconditional mean variance efficiency o f a world market portfolio, our evidence indicates that the tests are low in power, and the world market betas do not provide a good explana tion of cross-sectional differences in average returns. Multiple beta models provide an improved explanation of the equity returns.